Divorce, death of a family member, cancer, and IRS levies–these are among the most dreaded and stressful events one can experience in life. As a tax attorney whose clients have been levied by the IRS, I can tell you it will be more than a little stressful for the IRS to clean out your bank accounts. An individual or business that has been levied has to deal with unpaid mortgages, unpaid employees, landlords, immediate and necessary expenses, all with an empty bank account. It is a devastating financial blow. The more that is taken, the higher the stress. Below are the best ways to release a levy and strategies to relieve the hardship they cause.
#1. Ask the IRS to Release the Levy
Though not always easy, it is sometimes possible to get a levy released simply by asking the collector to release it. I’ll admit this is not common, but it is worth trying. In some rare cases, the IRS is just trying to get your attention and all they need to release the levy is to know that you are willing to cooperate and move forward with a resolution. This is most common in a first-time levied situation and your balance is relatively low, less than $50,000. And it always helps to polite and cooperative. As a condition of releasing the levy, the IRS Collector will probably require that you agree to some payment arrangement immediately. Once you are in a payment arrangement, the IRS will leave you alone. The IRS won’t levy if you are on a formal payment plan because they know they will be receiving their payments each month per the agreed terms of your Installment Agreement. Remember to cooperate and be polite with whoever you speak with at the IRS. They control whether you will receive the funds back or not.
In order to set up a payment arrangement, you may need to provide your income and expense information—especially with larger tax liabilities–so have it handy when you call in to talk to the IRS. If you don’t have everything they need, tell them you will call back shortly to provide it. You have 21 days from the day the bank receives the IRS levy to accomplish a release. To maximize your chances of getting the levy released, keep a cool head and start cooperating with the IRS immediately to set up future payments.
#2. Claim Economic Hardship
If you have been levied and you can show the IRS that the funds being held prevent you from meeting your basic living expenses, in particular rent or mortgage, then you can use Economic Hardship as a means to request and obtain a levy release. That does not mean that the entire levy will be released though. The IRS may only release enough so you can cover your necessary expenses. For example, if the levy is holding $10,000 in your bank account. And your mortgage and other necessary expenses are only $4000, then you can expect to only get $4,000 of the levy released, and the rest will remain subject to levy. See below for instruction on how to release the rest of the levy.
In the case of individuals whose only income is from social security, it is fairly easy to demonstrate that there is an economic hardship when a levy is placed on that individuals bank account or the social security payment itself.
Economic Hardship can only be used for “individuals” subject to the levy. It cannot be used for a business even though that business is suffering financially. The term “economic hardship” only applies to individuals that have an immediate need to pay rent, mortgage, food, medicine and the basic necessities.
#3. Comply With IRS Requests
A levy usually follows several letters from the IRS asking for payment and/or information. In many cases people and businesses want a payment arrangement but they have not yet filed their returns, they are behind on the current quarter’s employment taxes, or they simply have not given the IRS the financial statements and proof to show what they can afford to pay. In some cases, a Revenue Officer or phone collector will release the levy once they have received what they are asking for depending on the particular situation.
Remember, the levy requires the bank to hold the funds for 21 days which gives you a chance to work out a release. That may not be a lot of time for someone who has to file income tax returns though. But if you act quickly once the levy has hit your accounts, you will maximize the amount of time you have to work towards getting the release. You will always want to confirm very carefully with the collector what their conditions for levy release may be and then proceed with meeting those specific conditions. Once you have satisfied the requirements for release, the Revenue Officer will release the levy and the funds can go back to your account.
#4. File a Collection Appeal Request (aka CAP Appeal)
There are cases in which a business or individual has been levied in error or a legal requirement was not met before the levy was issued. In these types of situations, you or your representative can file what is called a CAP Appeal. The CAP (Collection Appeal Program) appeal will give you a hearing with an objective appeals officer who reviews the technical requirements of the levy to make sure it was issued legally. It is rare that the IRS makes a mistake in issuing levies, but when they do and you cannot persuade the collector to release it based on his error, there is recourse to an appeals officer. There are several steps to preparing a CAP that you want to be careful to follow to take advantage of the hearing process. If you can make the case for a faulty levy, the appeals officer has the authority to instruct the collector to release the levy immediately.
#5. Hire a Professional Experienced in Resolving Back Taxes
This really is the easiest and most effective way to handle a levy situation if you are in it. Since a 21-day clock is ticking, contact a professional immediately upon learning of the levy. You want to give your tax pro as much time as possible so that they can prepare the most effective and compelling case possible given the facts and circumstances on your behalf.
Managing your household bills or business expenses is stressful enough without the IRS swooping in and emptying your bank accounts. I’ve heard stories of taxpayers being left near ruin due to levies which could have been reversed with the help of a skilled and experienced tax relief attorney. A business can also lose future income when the IRS levies its Accounts Receivables. This can also be devastating to client relationships and trust.
The best policy is to avoid being levied in the first place and engaging a tax relief professional early on in the process will help you to avoid that disaster. But if you have delayed taking care of the IRS debt, and your money is suddenly swept up by an IRS levy, it can be crippling. When faced with tax debt, especially a levy, a tax representative will become a vital member of your team. Simply put, there is no substitute for a tax resolution professional’s in-depth knowledge of the tax laws and experiences dealing with hundreds of similar situations over a career spanning many years.